d by our policyholders so they matter most to us. massmutual. we'll help you get there. [ticking] [birds squawking] >> corporations are avoiding paying billions of dollars in u.s. taxes by moving their operations to new tax havens, like the swiss town of zug. so here we are in zug. we went there to visit their operations. and we came to see your international headquarters. >> um, at the moment, my boss is not here, so... >> she said her boss wasn't there and we should call someone halfway around the world. in houston? >> yeah. >> not here? >> no. [ticking] [dog barking] >> you're watching a surprise early-morning raid, police in riot gear looking for counterfeit prescription drugs. and they found them everywhere. the police were led here by someone you wouldn't expect: john clark from the american

drug company pfizer. this stuff is gonna get into people's medicine cabinets? >> unfortunately, yes. >> counterfeit drugs are ending up in millions of american homes. at this postal facility, the shear volume of packages of suspicious drugs is staggering, and this is just from one day. [ticking] [crowd chanting] >> when most people think of brazil, they think of its passion and excellence in soccer... [crowd cheers] not of skyscrapers in sao paulo, the financial hub of a fledgling economic superpower. they think of the pulsating beat of the samba and carnival, not commodities or the world's largest cattle industry. [cow moos] most powerful country in south america? >> gdp-wise, we are bigger than all the other countries together. this is it. hello. time for americans to wake up. >> welcome to 60 minutes on cnbc. i'm morley safer.

in this edition, we take a look at the impact of global expansion on american corporate tax loopholes, counterfeit drug trafficking, and the economic rise of brazil. we begin with the always taxing topic of taxation. companies searching out tax havens are nothing new. in the '80s and '90s, there was an exodus to bermuda and the cayman islands, where there are no taxes at all. when the government threatened to clamp down on tax dodging, many companies decided to leave the caribbean, but as lesley stahl first reported in march 2011, instead of coming back home, they went to safer havens like switzerland. >> several of these companies came to this tiny dot on the swiss map called zug, a small, quaint, medieval town. i don't think anybody's ever heard of zug in the united states. hans marti, who heads zug's economic development office, showed off the nearby

snow-covered mountains. but zug's main selling point isn't a view of the alps. how low are the taxes here? >> it's something between 15% and 16%. >> and in the united states, it's 35%. >> i know. it's half, half price. >> and do you have the lowest tax rate in switzerland? >> most probably, yes. >> most probably, yes. so you're kind of a tax haven within a tax haven. >> [laughs] maybe, yes. >> yeah, yeah, yeah. >> the population of the town of zug is 26,000. the number of companies in the area: 30,000 and growing. but many are no more than mailboxes. texas democratic congressman lloyd doggett questions whether the moves of several companies are legit. >> a good example is one of my texas companies that's been in the news lately, transocean. >> transocean owned the drilling rig involved in the giant bp oil spill. they moved to zug. >> i'm not sure they even moved that much. they have about 1,300 employees

still in the houston area. they have 12 or 13 in switzerland. >> and yet they claim that they're headquartered over there. >> they claim they're swiss, and they claim they're swiss for tax purposes, and by doing that, by renouncing their american citizenship, they've saved about $2 billion in taxes. >> so here we are in zug. we went to find their operations here. and we came to see your international headquarters. >> um, at the moment, my boss is not here, so... >> she said her boss wasn't there and we should call someone halfway around the world. in houston? >> yeah. >> not here? >> no. >> but this is the headquarters. >> i know. >> and is the ceo here? >> no. >> i mean, normally here? >> no. >> another texas company that moved here is weatherford, a $10 billion oil field services firm. it still has 2,800 workers in houston, but according to official documents, they are incorporated in zug in this

small building. but there was no weatherford on the sign outside. finally found it listed in this thing. "weatherford international." here--here's the mailbox, but we don't know, even, where to go, 'cause there's no listing for the international headquarters erford. so we started knocking on doors. hi. >> greetings. >> we're looking for weatherford. are they in this building? >> yes, um-- >> here? >> just a moment, please. i have to check it. >> okay. all right. i was shown to a conference room they said weatherford rents for board meetings. but weatherford's houston office told us they never go there. so are these big companies pulling a fast one? well, apparently not. under both zug and u.s. tax laws, it's perfectly legal to get the low tax rate, even without a real presence here. but congressman doggett wants to change that. you have proposed legislation

that a company will be taxed not based on where they file some pieces of paper, but where their decision makers, their management, actually resides and makes decisions. >> let them pay the same way that other houston-based companies pay. and so if they have their management in control there, they ought to be paying here in the united states. i think it's fair. >> we found that faced with the mere threat of doggett's legislation, transocean and weatherford both packed up their top brass and shipped them to geneva. we were told transocean's top ten executives live around here in the geneva area and work on the top two floors of this building, everyone from the ceo to the chief financial officer to the vice president of taxes. they wouldn't talk to us, and neither would weatherford, that also moved their ceo and cfo to geneva. and so now we're beginning to see a jobs exodus from the u.s.

of top management. >> we can't write a law that their lawyers can't get around. that's the whole problem here. >> you're in congress. why did congress write these laws that allows this to happen? >> there's been a lot of arm twisting, a lot of effective lobbying here, and some really smart tax lawyers figuring out how to game the system with one shenanigan after another. >> but are they shenanigans, or is it the law? >> i think it was a shenanigan when some of these companies felt so strongly about america that they renounced their american citizenship and began saluting a foreign flag. they exploited a provision in our tax laws and moved offshore. [ticking] >> coming up: are u.s. corporate taxes too high? >> every other government in the world have realized that the u.s. has it wrong. >> cisco's ceo, john chambers, when 60 minutes on cnbc returns.

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[ticking] >> in 2004, congress passed a law mandating that any u.s. company wanting to move offshore would still have to pay the 35% corporate tax rate. but despite passage of that legislation, companies can still substantially lower their taxes by moving chunks of their businesses to their foreign

subsidiaries. >> i think when people hear that all these companies are moving overseas because of taxes, they think, "that doesn't smell right." >> yeah, the question is, does a company have a moral obligation to pay its fair share? >> swiss tax attorney thierry boitelle. >> i think many companies in the u.s. would like to keep the jobs in the u.s. if they could, but they also need to keep the shareholders happy, and they are in the u.s. in a corporate tax nightmare because it's the highest tax rate in the world. >> the u.s. actually has the second highest rate in the developed world after japan, and they've considered lowering theirs. >> we are dealing with a tax system that is a dinosaur. >> one ceo who would talk to us is john chambers, head of cisco, the giant high-tech company headquartered in san jose. he says our tax rate is insane. it's forcing companies into these maneuvers, especially when

many other industrialized countries, including canada, are busy lowering their tax rates in order to lure our companies and our jobs away. >> every other government in the world have realized that the u.s. has it wrong. they're saying, "i'm gonna have lower taxes, period." that's what you see across all western europe. that's what you see in asia in the developed countries. >> are you judged as a ceo on things like this, on taxes? >> absolutely. >> he's been expanding cisco overseas because of growing demand abroad but also to lower the company's taxes. economist martin sullivan says it's standard operating procedure for companies like cisco. >> u.s. multinationals are shifting their research facilities, shifting their manufacturing facilities, and shifting some regional headquarters into switzerland and into ireland, and those are massive numbers of jobs. >> he says ireland taxes corporations at just a third of the u.s. rate. so no wonder the outskirts of

dublin look like silicone valley. these companies are all but obliged to go abroad. >> well, if you have a 35% rate in the united states and, for example, a 12.5% rate in ireland, there's a incentive to move your factory to ireland. >> why isn't everybody in ireland? [both chuckle] >> almost everybody is in ireland, all the pharmaceutical companies, all the high-tech companies. you're stupid if you're not in ireland. >> we noticed that you have an awful lot of companies in ireland. >> yes, we do. >> one, two, three, four, five, six, seven, eight companies in ireland. >> mm-hmm. we do what makes sense to the shareholders. we go where there are incentives in countries that say, "we want you here. we're gonna give you tax advantages. we want you to add jobs here." et cetera. we can no longer, in america, say, "this is how we do it; therefore, you must do it." we've got to change, or we're gonna get left behind. >> an increasingly popular way particularly pharmaceutical and high-tech companies like google avoid paying the 35% is to shift

their patents, computer code, pill formulas, even logos from their u.s. bases to their outposts in low-tax countries. >> 100 years ago, if a company would want to relocate, you'd have to pick up the factory, machinery, move everything. today a company can move predominantly all of its assets just on paper. >> you can push a button and move your algorithms, you know-- >> or coca-cola could take the recipe out of the vault and put it in a swiss vault. >> and then it's swiss. >> yeah. >> when a formula or a computer code is registered abroad, say in zug, a u.s. company is allowed to claim that a lot of its taxable profits are there, even if most of its sales are in the u.s. >> the need for tax reform is greater than ever. >> economist sullivan told congress these patents and profit transfers are accounting tricks that allowed companies to chip away at the 35% and save tens of billions of dollars.

he says that from 2007 to '09, these maneuvers helped lower pfizer's average tax rate to 17%, merck to 12.5%, and ge just 3.6%. >> you know, what's really remarkable as i review the data is the consistency with which you see this phenomenon. the taxes are going down. the profits are shifting offshore at an accelerated rate over the last few years. >> so now these companies have profits accumulating overseas in places like zug. oh, look at your clock tower. if they bring the money home, it's taxed at the full 35%. if they leave it overseas, the irs can't touch it. in other words, the tax law all but forces companies to keep their money out of the country indefinitely. >> we leave the money over there. i create jobs overseas. i acquire companies overseas. i build plants overseas.

and i badly want to bring that money back. >> how much does your company have overseas that could be brought back here? >> almost $40 billion. $40 billion. >> cisco has $40 billion trapped over there somewhere? >> yes. >> the total amount of money u.s. companies have trapped overseas is $1.2 trillion. chambers is advocating for a one-time tax break to allow them to bring that money home at a rate of, say, 5%. he says that would stimulate the economy and create jobs. >> what is your downside for money that isn't gonna come back anyhow? i'd say your downside is zero. >> but the obama administration has opposed this in the past. when it was tried in 2005, the treasury did rake in billions of dollars, though very few jobs were created. but what if tomorrow congress passed a quickie law, and the tax rate was 20%? would that solve everything? >> i think it is the most important ingredient that we have to think about being

competitive. >> you lower the rate from 35% to 20%. you lose something like $2 trillion in taxes. >> okay. >> we have a horrible deficit crisis, debt crisis. that's almost too much money to lose. what's your answer to that? >> my answer's very simply every other developed country in the world has already done this. i'm not asking you to give me a favor or a handout. >> you know it? it sounds it. >> all we're asking is, give us a level playing field. get us close. >> since our report first aired, the corporate tax debate has continued unabated. representative lloyd doggett remains a staunch opponent of what he calls a tax holiday giveaway for u.s. corporations looking to move their offshore profits back home. in the meantime, seemingly american companies such as transocean and weatherford stay swiss. [ticking]

coming up: the new war on drugs. >> sucrose, confectioner's sugar, and maple sugar. >> sugar and also chalk. imagine taking a medication to treat a serious illness with those ingredients. >> people can be seriously injured, but people can also die. >> the real cost of fake drugs when 60 minutes on cnbc returns. [ male announcer ] the 2013 smart comes with 8 airbags,

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dangerous ingredients such as highway paint and floor wax. as cnn's dr. sanjay gupta reported while on assignment for 60 minutes in march 2011, criminal counterfeiters will go to any length to evade detection. [dog barking] >> you're watching a surprise early-morning raid in lima, peru: 200 police in riot gear storming an indoor market. their target: counterfeit prescription drugs, and they found them everywhere. there were crude packaging machines and silk screens with imprints of actual name brand drugs. hundreds of thousands of counterfeit medicines collected from that raid were traced back to this house. through a back door and down a narrow hallway, we found a tiny squalid patio that was actually a fake drug factory turning out an astonishing number of counterfeit medications. peruvian police were led here by

someone you wouldn't expect: john clark from the american drug company pfizer. i'm looking at this pan with these pills in it. this stuff is gonna get into people's medicine cabinets around the world? >> unfortunately, yes. >> clark heads up a global security team assembled by pfizer, former fbi, homeland security, and narcotics agents who work with local police to track down criminals around the world. counterfeit operations like these are costing drug companies millions of dollars a year. this has "pfizer" written all over it. >> and it's even got the newer pfizer emblem with the little slant on it and stuff. i mean, from the packaging, you'd never know. >> here, they discovered about two dozen medicines, including antibiotics, seizure, blood pressure, and pain medications. we're in the middle of this very primitive courtyard. this doesn't look like any kind of facility that you'd expect at all. does this surprise you? >> no. no, unfortunately, the quantity of counterfeits you're seeing is phenomenal. the conditions are just abysmal,

and if the consumer ever realized that products that they're putting inside their bodies come from this, from dirty water drying out in the open under a heat lamp, insects and everything else getting into it, contaminants being, you know, brought into the equation and stuff, i think they'd be horrified. >> according to john clark, counterfeit pfizer drugs, many from disgusting conditions like this, have made their way to pharmacies and hospitals in at least 46 different countries including england, canada, and the united states. so right now, there are people around the world taking medications to save their own lives who are simply taking the wrong thing, and they don't even know it. >> yes, absolutely. if you have any concerns, you should go to your doctor, you should go to your pharmacist. if the pill dissolves differently, if it tastes bitter or different-- >> john, you know, i'm a doctor. i looked at these medicines today. i wouldn't be able to tell if they were fake or not. >> right. >> i'm the person they're gonna

ask. >> right. >> i don't know the answer. how are the people gonna know the answer? >> next step is, every pharmaceutical company will take it back, do the tests, then find out if it's a counterfeit, how it got there, and try and make sure that they get off the market immediately. >> the pills from peru were sent here to pfizer's testing facility in groton, connecticut. sometimes, counterfeits may have a percentage of the correct active ingredients, but not when it came to this antibiotic or this ulcer medicine. >> sucrose, confectioner's sugar, and maple sugar. >> sugar and also chalk. imagine taking a medication to treat a serious illness with those ingredients. >> people can die. people can be seriously injured, but people can also die. >> kumar kibble, deputy director at immigrations and customs enforcement, or i.c.e., is charged with protecting our borders from elicit trafficking. over the past few years, his attention has increasingly focused on counterfeit drugs. in the scheme of things, how big a threat are fake drugs? >> fake drugs are a big threat, and it is an exploding threat.

you actually have traditional criminal groups that may have engaged in traditional drug trafficking. they realize, "you know, i can make just as much money making, you know, tens of dollars on a pill that i manufacture for pennies and have very little exposure in terms of prosecution." >> so you're talking about a very low-risk, very high-reward, potentially tons of money. >> yeah, absolutely. when you think about that some of these pills can be manufactured, you know, for 40¢ and sold for $18 or $20, i mean, just think of that profit potential. i mean, it's just--it's insane. this looks like a legitimate website, but-- >> kibble tracks counterfeits from their source in clandestine labs to the united states, where they're typically sold through rogue internet sites often posing as legitimate pharmacies. 36 million americans are estimated to have bought their medicines from these sites, many searching for quality drugs at a better price. some sites pretend to be from canada because canada is known

for safe, inexpensive medicines. kibble caught this israeli counterfeiter on a hidden camera admitting that very scheme. >> that same counterfeiter also told undercover investigators of another decidedly low-tech way of smuggling hundreds of thousands of pills into the united states. he simply had them dropped in the mail. at the postal service facility at jfk airport, the shear volume of packages of counterfeit and suspicious drugs coming into the country is staggering. after x-rays... if you look closely here-- >> you see little round objects that don't belong. >> customs puts aside thousands for inspection. >> looks like a normal run-of-the-mill speaker. >> that's every one of these bins, and this is just from one day. [ticking] >> coming up, the critical condition of fake drugs. >> we do know that in certain countries, somewhere between 30% and 50% of really important

drugs for health are, in fact, counterfeit. >> that's ahead, when 60 minutes on cnbc returns. [ male announcer ] for the saver, and a big first step. for the spender who needs a little help saving. for adding "& sons." for the dreamer, planning an early escape. for the mother of the bride. for whoever you are, for whatever you're trying to achieve, pnc has technology, guidance, and over 150 years of experience

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[ticking] >> fake prescription drugs are increasingly making their way into the u.s. marketplace. many are purchased from websites claiming to be reputable online pharmacies. but as doctor sanjay gupta reported in march 2011, even when law enforcement officials intercept the contraband, they're often unable to make an arrest. >> our resources certainly haven't kept pace with the

volume of products coming into the country, with the increase in volume. >> the food and drug administration's david elder told us, when they do find a fake drug, they're often forced to ship it back to the sender. on this day, they found pills and vials from india posing as legitimate thyroid, fertility, and hypertension medications. they had to send it all back. >> that sounds crazy. why not go after this person? >> we don't have the authority to actually destroy this on-site. this product could very well come back into the country through a different mail facility. maybe it gets through. maybe it gets stopped. >> but they're banking on one of these times, you're gonna miss. >> yeah. i think they are. >> and many of these fakes are so sophisticated, even investigators at this fda lab in cincinnati couldn't distinguish which bottle of zyprexa is fake with the naked eye. using a forensic light source, they can test the ink, and the label that lights up, that's the real one. this fake lipitor pill looks so authentic, they had to superimpose a diagram of an actual pill to see that the

number 20 did not match up. >> with the naked eye, you cannot see this. >> as they say in india, you could manufacture anything. there's no limit. >> balbir bhogal was arrested in madison, wisconsin, for allegedly trafficking counterfeit drugs. he's also accused of providing millions of antianxiety pills from india to a website operator for a site with a common, seemingly harmless name. >> he was running an internet pharmacy, which is actually, i discovered recently that it's a website, "easy meds 4 u." >> easy meds 4 u? >> yes. he had lots of lots of supplies. >> you've never met him. >> never met him. >> it's a total virtual world. >> absolutely never met him, and i didn't even believe what his name was real or not. >> bhogal maintains his innocence and claims he was only supplying anti-anxiety medicines with the proper formulation and thought it was for the asian market. the government says he knew the pills were illegally coming into the united states. were you worried at all about these medications, where they

were gonna end up? >> never looked at that issue at all. >> do you wish you had? >> yes. >> what is even more alarming is, these counterfeit medications are not just being sold on the internet. they're also making their way into mainstream pharmacies and hospitals. fda commissioner margaret hamburg says that while the vast majority of our drug supply is safe, there's reason for concern. >> you know, we don't really know the full dimensions of the problem, but we do know that in certain countries, somewhere between 30% and 50% of really important drugs for health are, in fact, counterfeit. >> how does all this increase in counterfeit drugs around the world affect the united states? >> just consider that 40% of drugs taken in this country come from other countries. 80% of the active pharmaceutical ingredients in drugs taken in this country actually come from other countries. >> even if the prescription medications are manufactured in the united states, the raw

ingredients often come from overseas through a complicated web of suppliers and distributers and are increasingly vulnerable to counterfeiting. that's what happened in 2008 with the blood thinner, heparin, which millions of americans rely on to prevent blood clots. little did the manufacturer, baxter international, know that one of the raw ingredients from china was counterfeit. how many people were affected by this? >> in this country, a little over 80 people actually died from contaminated heparin. >> baxter says the number of deaths is closer to four or five, but everyone agrees it's difficult to know the exact number. nurse colleen hubley says, at at her dialysis center in toledo, ohio, she saw one patient have cardiac arrest and others with strange symptoms after receiving heparin. >> having hypotension, diarrhea, vomiting. i even had another patient that stated to me, "you know, what is going on around here?" >> had you ever seen anything like this? >> mm-mm. no.

>> and then she says she saw the same symptoms in her own family. she says her husband, randy, and her mother-in-law, both regular users of heparin due to chronic kidney disease, had bad reactions and died within a few days. baxter, which is being sued by coleen hubley and others, disputes that and says the serious underlying medical conditions of her family and patient quote, "much more likely caused their deaths." you lost one of your patients, your mother-in-law, and your husband, randy, within a month or so. >> gone. >> coleen hubley says she never imagined heparin could be counterfeit. you really counted on that heparin... >> yes, we did. >> being perfectly fine? >> and i don't know if, in my nursing career, i'll ever take anything for granted again. >> baxter's ceo told congress that he deeply regretted what had happened. the company told us in a letter that the counterfeit ingredient so closely mimicked heparin that "it was able to evade the quality control systems and

regulatory oversight of more than a dozen companies and nearly a dozen countries." fda commissioner hamburg told us they're still struggling to get to the bottom of it. so you know who perpetrated this crime with the heparin contamination or exactly how they did it? >> we do not know the answer to that question. >> despite what happened with heparin, most of the ingredients in our medicines today still come from other countries, including china and india, which have notoriously weak regulatory systems. the fda only inspects about 12% of overseas facilities a year. everyone's concerned. it's hard to regulate. it's potentially problematic, even deadly. why does it continue to happen? >> i think that we live in a globalized world, and components of all kinds of products are gonna come from all over the world. >> it's cheaper over there. it's economics. >> it is economics for the companies. i do believe that we can do an enormous amount to strengthen the safety of the supply chain.

>> drug companies say they already have their own systems in place to protect their supply chains, but they also have to worry about those clandestine labs like the one we as in peru, which are popping up all around the world, according pfizer's john clark. >> and if there are no consequences for those doing this, then there's no disincentive not to just go back and do it again once you're caught. i mean, the profit on illegal medicines is just phenomenal. >> and catching them isn't easy. at the lab in peru, police arrested a messenger, but the kingpin of the counterfeit drug operation had slipped away. what do you think, john? are they gonna find this guy? >> they'll be lucky if they do. >> since our report first aired, all charges against balbir bhogal were dismissed by a federal new york court in may 2011. the next month, an illinois jury awarded $625,000 to the estate of a man given contaminated heparin. this was the first verdict from

hundreds of pending lawsuits filed against baxter international and its chinese supplier. [ticking] coming up... >> most powerful country in south america? >> gdp-wise, we are bigger than all the other countries together, and, you know, in the last 16 years, brazil has put its act together. this is it. hello. time for americans to wake up. >> brazil steps out onto the global stage, next on 60 minutes on cnbc.

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[ticking] >> for decades, the joke about brazil has been that it's the country of the future and always will be. despite enormous natural resources, it's long displayed an uncanny ability to squander its vast potential. now it's beginning to look like brazil might have the last laugh. while most of the world is consumed with debt and unemployment, brazil is trying to figure out how to manage an economic boom. as steve kroft reported in december 2010, brazil seemed poised to overtake france and britain to become the world's fifth largest economy. with soccer's world cup and the olympics on their way, brazil is about to make its grand entrance on the global stage. [crowd chanting]

>> when most people think of brazil, they think of its passion and excellence in soccer... [crowd cheers] not of skyscrapers in sao paulo, the financial hub of a fledgling economic superpower. [fast-paced drumming] they think of the pulsating beat of the samba and carnival, not commodities or the world's largest cattle industry. [cow moos] they see the beaches of ipanema and copacabana and breathtaking vistas... this is quite a view. >> yes, incredible, huh? >> not brazilian tycoons like eike batista, who has the best view in rio, not to mention a net worth of $27 billion. how do most americans see brazil? >> they think buenos aires is the capital of brazil, so they mix us with other countries around south america. >> most powerful country in south america? >> gdp-wise, we are bigger than all the other countries together, and, you know, in the last 16 years, brazil has put

its act together. this is it. hello. time for americans to wake up. >> with most of the world's economy stagnant, brazil's grew at 7% in 2010, three times faster than america. it is a huge country, slightly larger than the continental u.s., with vast expanses of arable farmland, an abundance of natural resources, and 14% of the world's fresh water. 80% of its electricity comes from hydropower, it has the most sophisticated biofuels industry in the world, and for its size, the world's greenest economy. brazil is already the largest producer of iron ore in the world and the world's leading exporter of beef, chicken, orange juice, sugar, coffee, and tobacco, much of it bound for china, which has replaced the u.s. as brazil's leading trade partner. >> and brazil has the size to match china's appetite. it's a big dragon on the other

side. >> you have everything they need. >> we have--yes. you need brazil to basically fulfill the chinese needs. >> batista, who has interests in mining, transportation, and oil and gas, is building a huge superport complex north of rio with chinese investment that will accommodate the world's largest tankers and speed delivery of iron ore and other resources to asia. [drill whirrs] but it's not just commodities that are driving the brazilian boom. the country has a substantial manufacturing base and a large auto industry. aviation giant embraer is the world's third largest aircraft manufacturer behind boeing and airbus and a main supplier of regional jets to the u.s. market. eike batista says the one thing that brazil could use more of is skilled labor. >> we have to create more engineers. in my oil company, i'm importing americans to weld our platforms. >> to weld the platforms? >> yes. there's a lack of welders.

we're walking into a phase of almost full employment. this country has created almost 1.5 million jobs this year already. that's unbelievable. >> brazil has seen periods of prosperity before, only to have the bubbles burst. it spent billions in the '50s and '60s moving its capital to a barren savanna near the middle of the country, where it built brasilia, a futuristic city right out of the jetsons. then it borrowed billions more to develop the country's interior. corruption and ineptitude eventually led to a financial collapse... >> [shouting in portuguese] >> 2,000% inflation, and, at the time, the largest financial rescue package in the history of the international monetary fund. >> [speaking portuguese] >> then a few years later, this man walked into the president's office. >> [speaking portuguese] >> president luiz inacio lula da silva, known simply as "lula," is a former metalworker with a fourth-grade education and a doctorate in charisma.

>> [speaking portuguese] >> when he was elected in 2002 on his fourth try, lula was a firebrand labor leader with socialist tendencies. some predicted another hugo chavez, but he left office at the end of 2010 with an 87% approval rating and much of the credit for turning the country around. we talked to him at the presidential residence in brasilia. when you took office, there were many businessmen both in brazil and abroad who were very nervous about you, who thought that you were a socialist and that you were going to take the country sharply to the left, yet these people now are among your biggest supporters. how did that happen? >> [speaking portuguese] >> male translator : look, every once in a while, i joke that a metalworker with a socialist background had to become president of brazil to make capitalism work here, because we were a capitalist society without capital. and if you look at the bank's

balance sheets for this year, you will see that the banks have never made so much money in brazil as they have during my government. the big companies have never sold as many cars as they have during my government, but the workers have also made money. >> how have you managed to do that? >> i have found out something amazing. the success of an elected official is in the art of doing what is obvious. it is what everyone knows needs to be done, but some insist on doing differently. [ticking] >> coming up, brazil's new oil fields. >> this oil story is a trillion-dollar story right in front of us here. >> what did the offshore oil discoveries do for brazil? what do they mean for the country's future? >> oh, it means, you know, we should be producing in excess of 6 million barrels a day, so you put us among the third, fourth

largest producer in the world. massive exporter. >> that's ahead, when 60 minutes on cnbc returns. [ male announcer ] when this hotel added aflac

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oh, hey alex. just picking up some, brochures, posters

copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners. [ticking] >> the rapid growth of the brazilian economy at the beginning of the 21st century has been attributed to the country's 35th president, a man known simply as lula. >> one thing obvious to lula was the social and economic chasms separating brazil's rich and poor. he gave the poor families a monthly stipend of $115 just for sending their children to school and taking them to the doctors.

the infusion of cash helped lift 21 million people out of poverty and into the lower middle class, creating an untapped market for first-time buyers of refrigerators and cars. but he was also far friendlier to business than anyone expected, encouraging growth and development and maintaining conservative fiscal policies and tight banking regulations that left brazil unscathed by the world financial crisis. >> lula was the right man at the right time, it seems. you have to admit it, you know? he's a kind of pop star. >> eduardo bueno is a colorful commentator and best-selling author of popular brazilian history. >> what's his secret? >> he's streetwise. i guess you can say that. he knows people. he knows the feeling. he knows what they want. he knows how to deal with the rich. he charms president obama. >> and he charmed the international committees that awarded brazil the 2016 olympics and the world cup of 2014,

political victories that announced the country's arrival as an international player and will present some challenges for brazil's 36th president. she's dilma rousseff, lula's former chief of staff and his hand-picked successor, who was elected in october 2010 because he was ineligible to run for a third term. there are people that believe that once you are gone, brazil may revert to its old ways. will the momentum continue once you leave office at the end of the year? >> if there's something i'm proud of, it is to have told my people that we are not second-class citizens, that we can get things done. we can believe in ourselves, and then people have started to believe. >> while many in brazil's cities lust for first-world status, the third world is never far away. [dogs barking] for decades, brazil ignored the festering slums known as favelas, which wrap around rio

overlooking some of the most valuable real estate in the city. they have been staging areas for street crime against tourists and safe havens for drug gangs so well armed that they brought down a police helicopter a few years ago with heavy machine gun fire. finally, after years of looking the other way, the military police have begun to move in. [machine guns firing] in fall 2010, some parts of rio were a battle zone, with the drug traffickers burning busses near some of the sports venues. but so far, the police have pacified 17 of the most dangerous favelas, and there are still 23 more to go. >> this is a revolution. i myself did not believe this three years ago. there's a solution for slums all over brazil. >> but there also some massive problems with infrastructure. if the road to brazil's future is long and wide, it is also jammed with traffic and filled with potholes. 90% of the roads in the country

are still unpaved, and in the cities, there's not much in the way of public transportation. whatever happens in brazil, no one will be able to blame it on a lack of money. that's because 150 miles off the coast lie what are believed to be the largest discoveries of oil found anywhere in the world in the past 35 years. petrobras, the state-owned oil company, is preparing to drill 20,000 feet below the surface of the atlantic to reach oil fields that sit underneath layers of salt beds. >> this oil story is a trillion-dollar story right in front of us here. >> what did the offshore oil discoveries do for brazil? what do they mean for the country's future? >> oh, it means, you know, we should be producing in excess of 6 million barrels a day, so you put us among the third, fourth largest producer in the world. massive exporter. >> president dilma joked that the oil discoveries were just the latest proof that god is brazilian.

an economist from goldman sachs no less had predicted that brazil along with russia, china, and india will dominate the world economy in the 21st century. if it happens, brazil would be a different kind of superpower, one that would rather make love, not war. it has no nuclear arsenal, and aside from contributing a small number of troops to the allied cause in 1944, brazil hasn't fought a war since 1870. >> why fight? with all the pleasures, beach and sun? war? forget it. [chuckles] soccer? let's watch a soccer game. let's go to the beach. let's drink a beer. >> since our report first aired, former president lula has undergone chemotherapy treatment for throat cancer. in october 2011, lula's doctors told an anxious nation that his chances of recovery were very good. well, that's our edition of 60 minutes on cn